Google and Facebook should be licensed

ACCC head Rod Sims says Google and Facebook are publishers. But they’re not - they are platforms. Picture: John Feder

Australian Competition and Consumer Commission chairman Rod Sims says Google and Facebook are publishers and should be regulated “in a very similar way” to traditional media.

In that case make them check everything before it’s published, like publishers do, instead of letting them just respond – inadequately and late - to complaints about stuff that’s been published already.

But they’re not publishers, and they’re nothing like traditional media, and approaching them that way is leading regulators up a dead-end street. They are utilities, or platforms, as the title of the ACCC inquiry puts it.

And the way you regulate utilities is to license them.

In my view, the only way to properly regulate Google and Facebook and other “designated platforms”, as the ACCC calls them, is to treat them like utilities or banks and require them to be licensed.

Most of the ACCC’s 23 recommendations could be incorporated into the licence conditions, along with others. The “specialist regulator” recommended in No.4 could be the licensing authority with the power to suspend or cancel the licences for a breach. It could even regulate pricing and return on capital, as with other utilities.

What’s more, this is something Australia could do on its own: simply require that any company that wants to operate a search engine or social media platform in this country has to have a licence.

Why the ACCC has not gone down the licensing path is hard to imagine. Is it because it thinks suspending or banning Google and/or Facebook would cause a riot? Maybe, but more likely everyone would just move to another platform, as they would to another bank if, say, Westpac lost its licence, or another telco if Telstra fell foul of the regulator. In fact, the licensee would very quickly toe the line.

At least the ACCC seems to be the first regulator to take seriously the threat that digital platforms pose to journalism and the business of news, even prompting Treasurer Josh Frydenberg to agree that “news and journalism is an important public good”.

Whether the Government takes the next step and provides more and stable funding for the ABC and SBS, plus grants for public interest journalism and tax deductibility for philanthropic support for journalism, as all recommended, is another matter of course. Probably not. Not that important a public good.

Facebook’s “like” logo. But the ACCC has found many things it doesn’t like about the digital giants. Picture: AP

The profits and market power of Google and Facebook derive from three things: zero marginal cost, vast amounts of inventory and an absence of regulation. No businesses in the history of the world have managed such a trifecta, to such an extent.

The first two characteristics come from the fact that they are not publishers, but platforms, publishing stuff produced by others at no cost.

According to the ACCC’s report, Google’s Australian inventory comes from 19.2 million people using it to search, which is pretty much everybody, plus 17.6 million viewing and posting to YouTube. Facebook’s Australian inventory comes from 17.3 million people using Facebook and 11.2 million using Instagram. Again – it’s everybody.

Each company has Australia’s largest customer base apart from Medicare, and the beauty of the business models is that the customers ARE the product – they supply both the inventory and the use of it, as well as lots of details about themselves so the advertising really works.

The third characteristic – the lack of regulation – is simply a classic bureaucratic delay in understanding and responding to harm, as with tobacco. If we knew then what we know now, they would have been banned, or strictly at least controlled.

Would Google have been allowed to buy YouTube in 2006, or Facebook to buy Instagram in 2012 and WhatsApp in 2014? Of course not.

Instead the ACCC is left to try to do something about future acquisitions with recommendations No. 1 and No.2: tighten merger laws and demand advance notice of acquisition.

Bolted horse, stable door. The only thing worth doing on the M&A front is the reversal of takeovers: Google should be forced divest YouTube and Facebook should be forced to divest Instagram and WhatsApp. That, at least, might achieve some competition.

Other ACCC recommendations include a specialist regulator set up within the ACCC which would then conduct an inquiry. Isn’t that what the ACCC just spent 18 months doing?

And then there’s a code of conduct for the digital platforms’ relations with the news media? Sure, sounds good. Businesses always adhere to codes of conduct.

And then we get to more money for the ABC and SBS as well as taxpayer support for private journalism, plus “digital literacy” programs in schools, which sounds uncomfortably like: we can’t ban tobacco, so we’ll have grim warnings on the packets and pay to help the victims.

And even if the ACCC recommended breaking up Google and Facebook – forcing them divest YouTube, Instagram and WhatsApp – would that really make much difference?

The five digital platforms, plus Snapchat and Twitter – one search engine and six social media operators - would then compete hammer and tongs with each other to invade our privacy and destroy journalism, and regulating them would be like playing Whack-a-Mole.

So it seems to me the only thing that would seriously make a difference to the digital platforms is a licensing regime, enforced by a tough regulator with both the power and willingness to cancel licences.

What’s more, given the power of these organisations – specifically their power to change the world by destroying journalism and influencing elections and the power to learn and sell access to our secrets – the need to have a licence seems not only perfectly reasonable but absolutely essential.

* Alan Kohler is Editor in Chief of InvestSMART - investsmart.com.au